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Quattro Clunking & thumping

I'm working on an 1998 A4 Avant Quattro 2.8L 5spd. Bone stock as far as I can see.
I searched and even googled before posting, nothing really helps.

The symptoms are a clunking/thumping noise heard from the center rear of the vehicle.
The thump is felt and heard under acceleration normally. It's more noticeable at 50% throttle and greater, and happens around 2,500 - 3500 RPM. I don't wanna push the car any harder than that.
Normally when it happens it sounds and feels like an ABS pulsation event. Rapid thumping and vibrations felt in the seat.
While the sound and feel is most pronounced under acceleration, I did feel and hear it at a 60 mph cruise in the rain today.

I replaced the rear CV axles upon my customer's request. This did not fix the problem.
Wheel bearings are good and were replaced recently. They have no play, all other suspension components have been found to be good upon inspection. All mounts are as good as they get for stock mounts.

When installing the axles, I noticed that the wheel on the drivers side seemed to bind as I rotated it by hand. I later put the vehicle in gear on the lift and simulated a drive up to 20mph in 1st and 2nd gear.

This produced the thump sound I was hearing, just once single thump instead a of a rapid thump like when the car is on the road. Other guys in the shop said that the wheels would stop turning when the sound was heard.

I had someone put their hand on the differential as this was happening and they confirmed the sound and feeling was coming from the differential.

Do you think the differential has about had it on this car?
Any ideas, comments or suggestions?